I’ve been trying to firm up the BBC reports today that social housing funding will be slashed in tomorrow’s spending review. So far the consensus seems to be that the picture could be even worse than the BBC is painting, with cuts of 80% possible.

My understanding is that local authorities could be given borrowing powers and allowed to jack up social housing rents in order to fund the construction of 150,000 affordable homes as government funding is slashed.

Sources close to government say that widespread reports in the last two days that social housing funding could be halved are a conservative estimate. One said to me: “Up until last week we were working on the assumption that the cuts will be 80% on the 2008-11 settlement [of £8.4bn] for social housing. If things have pulled back to 50% that’d be welcome”

An 80% cut would see funding reduced to under £2bn for the next three years, and would be little more than that needed to pay for existing social housing commitments.

However, a major review of the provision of social housing is being readied at the same time as the budget cuts, which is likely to allow landlords to charge more rent, and allow councils to borrow to build. Sources confirmed that a social housing target of 150,000 homes, quoted by the BBC this morning, was likely to be announced, funded mostly through these alternative forms of funding.

The government is planning to launch a consultation, called Social Housing Reformation, after the spending review announcements tomorrow.

The freeing up of rents is potentially interesting. Analysis by the Chartered Institute of Housing says that each £1 a week rise in rents generates £432m in cash for the social sector, which can then be leveraged to generate a further £4bn of borrowing. Significant rent rises could then potentially pay for a lot of homes. The traditional Treasury argument against this has been that as 80% of social home rents are paid with housing benefit, any rises in rents just transfer the subsidy needed to pay for affordable housing to another department.

However, the government has already said it is going to cap housing benefit, potentially meaning that, in high value areas at least, only a certain amount of rent rises will load on the DWP’s budget, with the rest being born by the tenant (despite the fact many are unemployed).

Amidst all this arguments about tenure are little more than a distraction, at least in terms of how social housing is paid for: ending security of tenure does nothing to pay for more homes, but it does give the newspapers something else to think about while you’re slashing budgets.

One of the most interesting areas to watch in tomorrow’s cuts will be if any profile of spending will be given. As the HCA has a large amount of forward commitments to housing associations and developers for 2011, cuts of anything more than a third in next year’s budget could leave the HCA unable to pay its contracted bills.

I will update this if I hear any more…

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